Saving requires common sense and discipline

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ALTHOUGH saving money is one of the hardest things to do in today's expensive world, two simple things underpin accumulating money for the future.

Common sense and discipline are the two main things which are necessary when saving money.

Without these qualities nothing can be achieved.

The first thing people should do is to work out a budget.

Most people don't like working out a budget because it forces them to face reality.

People should look at what they spend on necessities such as food, bills and transportation and then work out what they use on discretionary spending.

What people call necessities now, not too long ago were called discretionary spends.

People buy expensive packaged meals and other luxuries which can easily be avoided and allow people to make huge savings.

Registered BAS agent and ICB associate member Lea-Anne Berryman said private health insurance, life insurance and income protection were often overlooked as being too expensive or a luxury and were often the first expenses families felt they could do without.

However, in the event of an accident or illness being adequately covered provided families with the knowledge that they wouldn't be left with mounting medical bills and other expenses in difficult times.

The best way to allow for this in a family budget was by setting up a direct debit on a weekly basis as this seems to be affordable for most families and over time was accepted as a necessary budget item.

Budgets should be reviewed regularly as situations change and having a budget that isn't relevant to your situation simply won't work.

The industry's standard advice is that everyone should put away 10% of their net earnings into medium to long-term savings.

Once people have established how much they can save, they should look at putting money in the following areas.

First of all, people should put money aside for short term needs such as telephone bills and car insurance and registration.

The money for this could be held in an everyday passbook account which offers low interest rates but easy access.

Secondly, people should put money away for the medium (three to five years) term.

This money could be placed in internet banking accounts as they offer higher interest rates but make withdrawals more difficult.

Investments for the medium to long term could go to managed funds accounts which offer high interest rates over a five to 10 year period.

Finally, long term investments for retirement should go in superannuation accounts offering high interest.